HTML clipboardThe US mortgage-industry trade group is calling for Congress to transform the government controlled mortgage lenders Fannie Mae and Freddie Mac into several smaller private held companies, says a report.
According to The Wall Street Journal, Mortgage Bankers Association (MBA), mortgage-industry trade group is calling for Congress to transform Fannie Mae and Freddie Mac into several smaller private held companies that would issue mortgage securities carrying an explicit government guarantee.
The proposed framework, to be released today by the MBA, would give successor entities to Fannie and Freddie the authority to create securities backed by certain types of mortgages, the report said.
The new companies would guarantee securities against defaults on underlying mortgages and will also pay fees to a federal insurance fund, which would guarantee interest and principal payments to bondholders if the companies were unable to make them, the report noted.
Attributing to MBA Chief Executive Officer John Courson the daily said restoring and maintaining investor's confidence requires an explicit guarantee.
"If we're going to restore and maintain investor's confidence and...consistent liquidity, that is going to require an explicit backstop," quoting Courson the report said.
The Wall Street Journal noted that MBA's plan calls for government agencies, rather than new companies, to assume the "mission" of promoting affordable housing that Congress has long assigned to Fannie and Freddie.
"The new companies would not be allowed to hold large amounts of mortgages and securities under the proposal " the report said.
However, Fannie Mae and Freddie Mac hold large investment portfolios in mortgages, it added.
